To confirm, there should be Ace Combat 2 (USA) on the list. If you go into that folder there will be two files, you should be able to choose either of them to start the emulator.
If the insert disc screen shows again. Can you tap the power button to bring up the menu and choose Swap Disc. Then repeat the process above for locating the correct folder and choose the game from there. Does it load it?
Also try the following. Tap the power button and go into GPU Settings, SPU Setting and Core Settings and for each one choose the "Restore defaults" options. Once you have done all three, choose Quit to return to the main menu and then load a game.
I think we are contacting you by email, so if the above does not work, please reply to that email and we will set up a return for inspection.